Federal Solar Tax Credit 2026: Everything You Need to Know About the 25D Credit

The federal solar tax credit — officially Section 25D of the U.S. Tax Code — is one of the most valuable financial incentives available to American homeowners. In 2026, it allows you to deduct 30% of the total cost of a solar panel system from your federal income taxes. On a $25,000 solar installation, that’s a $7,500 tax credit.

What Is the 25D Solar Tax Credit?

The Residential Clean Energy Credit (Section 25D) was significantly expanded by the Inflation Reduction Act of 2022. It covers 30% of the cost of new, qualified clean energy property installed in your home, including solar panels, solar water heaters, battery storage systems (3 kWh or larger), and geothermal heat pumps. Critically, there is no dollar cap on the credit amount for solar systems — the more you invest, the larger your credit.

What Costs Are Covered?

The credit applies to the full installed cost of your system, including: the solar panels themselves, inverters, mounting hardware, wiring and electrical work, battery storage (if installed simultaneously), and labor costs for installation. This is a critical point — the labor component is included, which is not always the case with tax incentives.

How to Claim It

To claim the 25D credit, file IRS Form 5695 (Residential Energy Credits) with your federal tax return for the year in which your system was placed in service. “Placed in service” means the installation is complete and the system is operational — not just purchased. The credit is non-refundable, meaning it can reduce your tax liability to zero but will not generate a refund. However, any unused credit can be carried forward to the following tax year.

When Does the Credit Expire?

The 30% credit rate is locked in through December 31, 2032. After that, it steps down to 26% in 2033 and 22% in 2034, before expiring entirely for residential systems at the end of 2034. There is no rush — but waiting costs money. Every year you delay is a year you’re paying full electricity rates instead of generating your own power.

Find a Solar Installer Who Knows the Credit

The best solar installers will walk you through the tax credit process as part of their proposal. They’ll provide documentation of your system’s cost that you can hand directly to your tax preparer. Find a vetted solar installer on EcoProRegistry and start your solar journey today.